Lean Accounting has developed in recent times to provide the accounting, control, and measurement methods supporting lean manufacturing. Lean manufacturing is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful. This tool is applicable to healthcare, construction, insurance, banking, education, government, and other industries.
The objective is to eliminate waste, free up capacity, speed up the process, eliminate errors & defects, and make the process clear and understandable.
There are two main thrusts for Lean Accounting. The first is the application of lean methods to the company’s accounting, control, and measurement processes. The second thrust of Lean Accounting is to fundamentally change the accounting, control, and measurement processes so they motivate lean change & improvement,provide information that is suitable for control and decision-making.
Lean Accounting does not require the traditional management accounting methods like standard costing, variance reporting, cost-plus pricing, complex transactional control systems, and untimely & confusing financial reports. These are replaced by:
• lean-focused performance measurements
• simple summary direct costing of the value streams
• radical simplification and elimination of transactional control systems by eliminating the need for them
• eliminating traditional budgeting through monthly sales, operations, and financial planning processes (SOFP)
• value-based pricing
• correct understanding of the financial impact of lean change e.t.c
Source: ICAI Students Journal May 2010
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